The list of hostages Donald Trump and Benjamin Netanyahu’s war in Iran it is extensive. Thousands of kilometers away, two continents ―Asia and Europe― are experiencing an unprecedented price increase since the Russian invasion of Ukraine in 2022. Around the corner, half a dozen Persian Gulf countries that have suffered the attacks firsthand – the United Arab Emirates, Iraq, Bahrain, Qatar, Kuwait and Saudi Arabia – are seeing their oil and gas exports severely restricted by the double closure of the Strait of Hormuz. An economic blow of biblical proportions that is already causing the first requests for help from the United States, the greatest historical ally of this bunch of petrostates and, at the same time, the trigger of unpredictable scope and consequences.
The Trump Administration, through Scott Bessent, acknowledged on Wednesday that “several” Gulf countries – including the United Arab Emirates, as the newspaper reported The Wall Street Journal― have already knocked on the door of the White House to request an exchange (swap) currency exchange that supplies you with dollars in the short term. Although the Emirates themselves They reject the “rescue” labelthis first movement denotes an unprecedented liquidity tension in hard currency in the face of a crisis caused by the Republican magnate himself.
An SOS, in short, not common in nations that have enormous reserves, large sovereign funds and multimillion-dollar investments abroad. Also in the United States, where Trump himself has been greatly entertained – for the newspaper archive of horrors it remains the luxurious Boeing 747 gifted by the Qatari royal family– and they have promised multimillion-dollar disbursements that now remain up in the air.
“The request is, above all, preventive: if a line is established swapit is less likely to be used, since the markets will not put excessive pressure on exchange rates,” explains by email Azad Zangana, head of analysis for the Persian Gulf at the consulting firm Oxford Economics.
That Washington is considering the request is also self-serving. “The (investment) portfolios of Gulf sovereign funds are tilted towards dollar-denominated assets and using those assets to cover short-term fiscal needs risks disrupting US (financial) markets,” explains Paul Donovan, chief economist at Swiss investment bank UBS, in a note to clients. “The agreements of swap They allow Gulf economies to obtain liquidity without causing market disruption. However, in the longer term, the need for reconstruction and rearmament suggests that they will consider the sale of assets.” They will draw on their checkbook, yes, but not now.
Since the start of the war, Pimco, the largest fixed income fund on the planet, has already lent more than 10 billion dollars (8.54 billion euros) to the countries in the area, according to data compiled by Bloomberg.
financial earthquake
The closure of Hormuz is causing a real economic earthquake in the petrostates of the Gulf, for which the International Monetary Fund (IMF) is already projecting a generalized recession from which only Saudi Arabia escapes – with a considerable shock, of course. There was nothing to predict something like this a couple of months ago, when the region was facing a year of record exports and prosperity.
Everything changed on February 28, when the first missiles over Iran began to generate a shock only comparable to that of the 2020 pandemic. Because it is drying up its sales of crude oil and natural gas: except for the oil pipelines that allow a small fraction of Saudi, Emirati and Iraqi exports to be redirected, the bulk of their fuels are not being able to reach their usual markets. And because to this export blow is added the sudden halt in tourism and mass events, with which several countries in the region – with the Emirates, Qatar and Saudi Arabia at the helm – have been trying to diversify their economies for some time.
“The closure of Hormuz is a stress test for them,” writes Yousuf Hamed Al Balushi, researcher at the think tank. Gulf International Forumin a monograph published this week. “It is a structural test, which examines progress (in recent decades): if the Hormuz blockade lasts for months, they will have to make fiscal adjustments and resort to their sovereign reserves,” he predicts.
The UN figures They are even more explicit than those of the IMF: the five big names in the area, without even counting Iraq, will see between 103,000 and 168,000 million dollars evaporated from their economies. The equivalent, at the midpoint of the range, to everything that Spain earns from tourism in a year.
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How important is the Strait of Hormuz?
many realities
The Gulf, however, is far from being considered a homogeneous block. Despite having an oil pipeline that allows it to transport part of the crude oil trapped in Hormuz through Turkey, Iraq – the only republic of all of them: the rest are petro-monarchies – is, by far, the poorest, with a per capita income that is one sixth of that of Saudi Arabia and twelve times less than that of Qatar.
Although much richer than Iraq – its GDP per capita is five times that – Bahrain has seen its crude oil and aluminum exports sink to practically zero. Its cushion of reserves in hard currency is thin compared to that of its neighbors. And it also has one of the highest public debts in the world: almost 150% of GDP. A problem that, although structural, makes the seams burst when, as now, the cost of financing skyrockets.
In a second subgroup are Qatar and Kuwait, also tremendously hit by the collapse of gas and oil exports – and, in the first case, by the cuts in air connectivity, which have slowed the arrivals of visitors and damaged its large flag airline, Qatar Airways―, but with a little more room for maneuver thanks to the accumulated savings. They can, in short, allow themselves to last a little longer without the exporting mana. But not much either: Doha will see its economy sink by 8.6% this year, compared to the 6.1% growth that the IMF projected just six months ago, and Kuwait’s GDP will fall by 0.6%, compared to the 5.1% it calculated then.
The United Arab Emirates – paradoxically the country that first approached Washington to request help – and Saudi Arabia seem to be somewhat better equipped. Both are managing to redirect part of their flows through three pipelines that flow into ports in the Mediterranean, the Red Sea and the Gulf of Oman. And they are the ones who have gone the furthest in their commitment to reducing fossil dependency. But even there, the wounds are deep: the Fund has applied a cut of 1.9% and 0.9%, respectively, to its growth forecast for this year.
Even if Hormuz reopens soon, the scars will be long-lasting. “Even when hostilities cease, investors will demand higher interests (in the financing of these countries) to compensate for the geopolitical risk, which in turn will increase long-term borrowing costs and reduce the attractiveness of the region as a destination for foreign direct investment,” predict technicians from the United Nations Development Program (UNDP) in his last regional review. “This structural change in risk perception could persist for years, complicating their ambitions to diversify their economies and finance large social programs.”
